There is much interest in techniques that elicit people's forecasts about the likelihood of future events in order to aggregate the opinions of a group into a meaningful, and, one hopes, accurate, prediction. Two similar, related techniques are estimate contests based on scoring rules, and prediction markets.
Estimate contests are useful in tapping the organizational knowledge of a group. For example, some tech companies provide cash rewards or reputation points (by publishing participant's scores) to employees when they predict a correct outcome for events relating to the company, such as when a software product will ship, or what memory prices will be at a future date. Moreover, predictions of participants who have been correct relatively often in the past can be given a greater weight in future contests.
In prediction markets, participants buy and sell contingent securities in a marketplace. These securities represent the possible outcomes of a given forecasting question. Participants in a prediction market buy and sell these securities with the hope of owning the security representing the correct outcome, which will have a value. By applying market forces and letting people trade in the securities with real money or other valuable commodity, accurate forecasts can be obtained. The marketplace can be structured, for instance, as a continuous double auction (CDA) or a market which has an automated market maker. With a continuous double auction, buyers and sellers indicate how much they are willing to pay to buy a security or how little they will accept to sell a security. With an automated market maker, the system sets the security prices. Examples of prediction markets which are open to the public include the University of Iowa's Iowa Electronic Market, which allows users to predict the results of economic and political events such as elections, the Hollywood Stock Exchange®, in which players buy and sell prediction shares of movies, actors, directors, and film-related options, and HedgeStreet®, which enables users to speculate on economic events.
Prediction markets and estimate contests are similar in that both aggregate the opinions of a group of participants, both divide the possible outcomes into a set of buckets, and both require participants to implicitly or explicitly assign probabilities to each bucket. That is, both systems require participants to express likelihood estimates for future events. For example, an estimate contest might involve asking a group of users to estimate a high temperature for the next day's weather. One user might say that they think there is a 20% chance of a high temperature in the 50's, a 30% chance of a high temperature in the 60's, and a 50% chance of a high temperature in the 70's. To express their opinions, the users can assign a list of probabilities to various outcomes. Or, the users can express the outcome they find most likely (e.g., “The high temperature tomorrow will be 66 degrees.”) The users can also express their confidence in the estimate (e.g., “The high temperature tomorrow will be 66 plus or minus 3 degrees”). However, these approaches can be time consuming and error prone when there are many possible outcomes. Moreover, prediction markets can be daunting for many users because they rely on price-per-share and other market and securities metaphors.
Techniques are need for facilitating access to estimate contests and prediction markets.